RBC Capital believes smartphones represent the next wave of computing, and are truly “3C” devices – embodying the convergence of communication, computing, and content. In the report, they size the smartphone market, which we view as large, nascent, and underpenetrated. They also forecast the vendor landscape; predicting vertically integrated “challengers”, like Apple, RIM, Palm, and possibly others, will take significant market share from some incumbent cellphone, PC, and consumer electronics vendors. Others that, in their view, are positioned to benefit include: 1) carriers that “get it”; 2) smartphone suppliers/partners; and, 3) emerging/transplanted web, software, content, and media businesses.

Smartphone Market: Huge, Nascent, and Underpenetrated. RBC is raising their smartphone forecast due to: 1) the expected global shift by millions upgrading to smartphones for email, browsing, applications, and content; 2) smartphones’ potential to take market share, not only from voice and/SMS cellphones, but also from PCs, TVs, consumer electronics, and Internet markets – collectively representing over 2 billion users. They are raising their smartphone penetration forecast to 35.1% of global handsets or 504 million units (395 million prior) by calendar 2012. Additional revenue upside may come from new services (carriage fees, advertising, subscriptions, transactions, etc.) and revenues shifting from traditional media (TV, newspapers, web, etc.).

Data is Hard: Challengers to Dominate. Due to important differences from the PC, cellphone, and Internet markets, iconic smartphones are difficult to make, distribute, sell, and support. Thus, the firm predicts a select group of challengers will dominate the smartphone market, given their deep vertical integration (e.g., software/ hardware/ service ownership) and “special sauce” through which they create unique, iconic smartphone experiences – i.e., making complexity simple. They believe successful challengers may double or triple their revenues by 2012.

Some Incumbents to Face Challenges. RBC believes some incumbent cellphone/PC/consumer electronics companies (e.g., Nokia, Motorola, Dell, HP, Sony, Sony Ericsson, and LG) will face challenges and lose market share competing in the smartphone space – held back by technology, cannibalization, and organizational, customer, and shareholder barriers. These issues are not insurmountable; other incumbents may successfully evolve and compete.

Firm is raising their price targets on RIM from $100 to $150, on Apple from $190 to $250, and on Palm from $18 to $25, justified by increased market shares which, as visibility improves to the huge smartphone opportunity, offer upside to financials and potential multiple expansion.

So RBC has discovered the Smartphone segment is hot and growing. Good for them! The firm has spent potentially hundreds of thousands of dollars (and god knows how many working hrs) to come up with a 92 pg. analysis stating among things that PALM is worth $25 per share.

I believe the price targets on all 3 mentioned names are the new Street high targets. So expect some buy interest. Especially in PALM. Lol.